Thursday, February 02, 2012

False marking as false advertising requires bad faith

GL sued TT for false advertising, unfair competition, and
deceptive trade practices for misrepresenting the scope of its patents relating
to software used for trading in the futures industry. TT claimed that its patented software allowed
traders to place orders by coupling static and dynamic displays, which helped
them avoid missing the prices they wanted.
In 2004-2005, TT sued a bunch of companies, including GL, a lawsuit that’s
still pending. Simplifying greatly, and
possibly distorting the details: the judge overseeing TT’s infringement cases
construed TT’s patents not to cover software that automatically adjusts
positions when it receives new data (automatic re-centering). After that, a different defendant went to
trial and a jury found willful infringement, a finding affirmed on appeal along
with the underlying claim construction. In
that case, the defendant’s product had a mode in which the user could opt for
manual adjustment only; because it was possible for a trader to use the
software entirely in a mode protected by the patents, it was infringing, and
another judge denied summary judgment to still another defendant with an
allegedly similar product.

GL argued that certain TT software products were falsely
marked with patent numbers giving a misleading impression as to the character
of the products and the scope of the patents.
GL pled that TT was an experienced patent litigator and was on notice
that its patents did not cover software with automatic re-centering of the
price axis uncontrolled by the user. GL
further alleged that the TT products at issue each contained a price axis that
either automatically re-centers or could automatically re-center, but that the
patent markings were present at all times, including when automatic
re-centering was turned on. (Automatic
re-centering is apparently not a default mode for the products.) GL further alleged that TT marked its
promotional materials with the patent numbers, while also advertising that the
software allows automatic re-centering.

The court followed the general rule that, to avoid conflict
between the patent law and the Lanham Act, bad faith is required for a false
advertising claim when the falsity is misstatement of patent scope or status,
even though intent is generally not an element of a Lanham Act claim. GL (somewhat puzzlingly, given the “advertising
or promotion” element) argued that this rule only applied to “statements made
in the marketplace,” but the court disagreed.
GL then contended that no federal goal was served by “allowing a patent
holder to falsely tell the world that it has patent protection on a subject
matter that is outside the scope of the patent.”

The court disagreed. Patentees
need reasonable scope to tell the world about their claims.

GL argued in the alternative that it adequately pled bad
faith because it alleged that TT knew quite well that its patents didn’t cover
automatic re-centering. The court found
the definition of bad faith in patent claiming “somewhat nebulous.” Either incorrectness or falsity, or disregard
for either, is generally required. A
patentee may press its rights in good faith even if it misconceives those
rights. False marking cases have found
that a sufficiently plausible claim of patent right precludes a false marking
cause of action, and the court here borrowed that reasoning. False marking analysis doesn’t require expert
claim construction, the way infringement does, and the case law permits some
inexactness, such as listing multiple patents with a note that the product is
covered by one or more.

“The issue boils down to whether GL's interpretation that is
allowed (or perhaps even required) to mark its products even when they are
being used in a non-infringing mode is legally plausible so as to negate any
possibility of a finding of bad faith.”
The court found that it did: in light of the prior rulings, it was reasonable
for TT to believe that its products were covered by the patents and to mark them
as such even if the product was capable of modes of operation that didn’t read
on the patent.

There was also no requirement for TT to turn off the patent
number display in those modes. GL couldn’t
find any authority holding that patent marks can’t be displayed when a product
is used in a manner potentially not covered by the patents. Though GL argued that TT failed to tell the
public the proper bounds of its patent, the court found that TT was not
required to inform the public which features of its product were covered. The marking statute’s purposes of helping
avoid innocent infringement, encouraging provision of notice, and aiding the
public in identifying whether a product was patented were all met by the
display of the patent numbers, which could then be used to determine the scope
of the patent. (Of course, you could
also determine the scope of a completely irrelevant patent by looking it up—but
that’s about a fundamental weirdness of false marking, so never mind.)

There was no bad faith as a matter of law. Both state and
federal claims were dismissed with prejudice.

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